Most companies would have built projects here anyway, costing the state $4.4 billion.

Wind farms account for almost half of the Chapter 313 tax abatements granted.

Photo: CAROLYN MARY BAUMAN, STF

Whenever a government entity gives a company a break on taxes, it wants to know that it's getting something out of the deal — usually, jobs or new investment that wouldn't have appeared otherwise. It can sometimes be difficult, however, to figure out whether that's happening.

Companies always know more about their own financial positions than public entities do, and may say they have other viable locations when in fact they do not.

That happens more often than not in Texas' biggest economic development incentive program, according to a new study from University of Texas political science professor Nathan Jensen, who found that 85 percent of tax breaks granted under the Chapter 313 process didn't make a difference.

The Chapter 313 program, you'll remember, is the means by which school districts can grant exemptions from property taxes for capital-intensive, industrial projects expected to expand the tax base and generate jobs over the long term. The program has steadily grown since it was created in 2001, and if current trends continue, will exempt $1.1 billion in taxes in 2022.

The way the program is structured, school districts themselves don't lose funding by granting tax abatements, since the state's school funding formula evens out their budget. In fact, they can gain more funding by negotiating supplemental payments by the applicant.

So school districts have every incentive to grant the tax abatements. Their ability to negotiate supplemental payments, however, depends on the applicants' bargaining power — whether they're willing to walk away and build somewhere else.

Jensen's conclusion is based on the theory that companies wouldn't agree to the make big payments – averaging about 30 percent of the value of the tax breaks – if they really had other places to go. A bunch of the payments were clustered around the 40 percent mark, and Jensen suspected those applicants probably could've done without any relief at all.

To validate his findings, Jensen asked five experts to review the 257 applications filed from 2002 to 2014 to see whether they thought the companies really needed the tax break to locate in or stay in Texas. They found that only 15 percent of them did — meaning that the state lost about $4.4 billion in tax revenue through the Chapter 313 program, without getting anything in return.

For context, the Upjohn Institute, a Michigan-based research organization focused on employment policy, found last month that states gave out at total of $45 billion in tax incentives in 2015.

Of course, economic development policy is contentious. The Texas Association of Manufacturers has been strident in its defense of the Chapter 313 program, and Jensen's study — published in the Journal of Public Policy — will receive pushback. Dale Craymer, president of the Texas Taxpayers and Research Association, took issue with the analysis.

"I find the study incredibly subjective," he wrote in an email, pointing out that although companies might agree to accept something less than the full value of the tax break, they still needed some level of subsidy in order to locate in Texas.

Jensen responds that there's no proof the projects required benefits at all. "This can be an indicator that the company doesn't need any support to come to Texas," he says. "

Lydia DePillis covers the economics of everything in Texas. Previously, she was a business reporter at the Washington Post, a tech reporter at The New Republic, and a real estate reporter at the Washington City Paper. She's from Seattle.